Secondary market definition
/What is a Secondary Market?
A secondary market is any market in which financial instruments or other assets are bought and sold among investors. Prices are set in a secondary market based on supply and demand. The bulk of all trading occurs in secondary markets. The only parties not involved in a secondary market are the initial issuers of financial instruments or other assets. The term is used because it encompasses all sales occurring after financial instruments or other assets were originally offered for sale.
Examples of Secondary Markets
As an example of a secondary market, a sculptor creates and sells a statue to a collector. The collector then sells the statue at an art auction. Since the art auction occurs after the original sale of the statue, it is considered a secondary market. Any stock exchange or commodities exchange is another example of a secondary market. For example, a company sells its common stock during an initial public offering, after which the investors who bought the shares sell them on a stock exchange (the secondary market).
Advantages of Secondary Markets
Secondary markets reduce investment risk, since an investor can readily dispose of an investment in it. This is why investors prefer to acquire the securities of publicly-held companies whose shares are sold on an exchange, since they can more easily acquire and sell these securities.